Distressed M&A in a Pandemic: Considerations for Private Equity

  |   June 25, 2020

Below is an excerpt from REDW’s latest article posting, “Distressed M&A in a Pandemic: Considerations for Private Equity.”

Even before the coronavirus sent the global economy into a tailspin, private equity funds were training their focus inward on creating value for their portfolio companies and signaling more interest in distressed investing. The onset of the pandemic has only magnified this trend. Since March, when COVID-19 became a palpable threat to lives and businesses in the United States, most private equity funds have been scrambling to keep their portfolio companies afloat.

Meanwhile, volatility in the markets has given the industry the correction in valuation they have been looking for. Although we expect many to remain in triage mode for the short term, distressed funds and those with dry powder are actively looking for both quality and value investment opportunities—of which there will be many. What makes the current environment so unique is that—with the exceptions of businesses and industries that touch “essential” services—no company or industry has escaped the effects of COVID-19. The denominator for so many companies in distress today is not faulty strategy or feeble management teams; it is the sudden lack of liquidity deriving from a precipitous drop in demand.

While it may be easier to find discounted deals, it will be harder to value them. Though prior recessions offer some concept of what an eventual recovery might look like on paper, the nature of this particular economic rebound, when it happens, is unknown. There is no clarity around when the health threat might subside and allow for a resumption of “normal” activity and, thus, no clarity around when the economy might recover.

Detailed and rigorous due diligence has always been key to a successful acquisition, but now is a critical component in valuing a target with some confidence.

Continue reading the full article to explore timely insights on: valuing a target during a pandemic, tax and other considerations, and adapting new procedures for the new normal.

To discuss assessment and optimization of your due diligence practices, tax and other procedural considerations, please contact REDW Valuation Practice Leader, Brian Foltyn.

Reprinted with permission of BDO USA, LLP. REDW LLC is an independent member of the BDO Alliance USA.


REDW is committed to keeping you informed at all times, but especially during a crisis of the magnitude of the COVID-19 pandemic. Stay connected with us on LinkedIn and @REDWLLC. Or check out some of our other updates here.

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